IN THE
TAX APPEAL TRIBUNAL
SOUTH-SOUTH
ZONE
HOLDEN AT BENIN
APPEAL
No.: TAT/SSZ/016/2023
BETWEEN:
BAKER HUGHES COMPANY LIMITED ================= APPELLANT
AND
DELTA STATE INTERNAL REVENUE
SERVICE =========== RESPONDENT
BEFORE:
PROF. OBEHI A. ODIASE-ALEGIMENLEN CHAIRMAN
DR DAVID ALA-PETERS COMMISSIONER
MRS HILDA OFURE OZOH COMMISSIONER
MR VITALIS FRIDAY AJOKU COMMISSIONER
PROF. OLATUNDE JULIUS OTUSANYA COMMISSIONER
THURSDAY 25TH APRIL 2024
JUDGEMENT
This Appeal is brought
before the Tax Appeal Tribunal (South-South Zone Sitting in Benin), dated and
filed on 17th
January 2023 in Suit No. TAT/SSZ/016/2023.
BRIEF FACTS
The Appellant is a
company incorporated in Nigeria with its registered office at 11 Babafemi Osoba
Crescent, Off Admiralty Road, Lekki Phase 1, Lagos. Its principal activity is
the provision of
oilfield services, products, technology and systems to companies engaged in the
exploration and production of crude oil and natural gas while the Respondent is the body responsible for
the administration and collection of taxes due to the government of Delta
State.
The Appellant being
dissatisfied with the decision of
the Respondent conveyed in its Notice of Refusal to Amend dated 1 December
2022, with reference number
DT/IRS/ECIT/EGTL/2020/0027/250 do hereby appeal to the Tax Appeal Tribunal,
South South Zone upon the grounds set out below:
Ground 1
The Respondent misdirected itself and thereby acted in error
when it assessed the Appellant to additional Pay as You Earn (PAYE) in Delta
State for the years 2015 – 2020.
Particulars of Error
a. The Appellant is a company operating in
the oil and gas sector in Nigeria. The Company is incorporated to carry on
business as an oil service company.
b. The Appellant operates out of its
business address situate at Plot 173/176, Trans Amadi Industrial Layout, Port
Harcourt, Rivers State. Most of its employees are resident in Rivers State and
Lagos State. Its direct contracts and transactions are also executed in both states.
c. The effective start date of the
contract with Chevron Nigeria Limited for the Escavos-Gas-To-Liquid (EGTL)
Project in Delta State is 1st July 2015, however, the Appellant’s
local itinerant workers were deployed to Delta State in 2017.
d. Section 2 of the Personal Income Tax
Act 2011 (as amended) (PITA) provides that the relevant tax authority of a
State has the power to collect income tax from individuals resident within the
State. There is nothing in the law that grants the Respondent the power to
impose Personal Income Tax on individuals who are resident in another state.
e. In view of the foregoing, the Appellant
remits PAYE for only employees working on the project in Delta State to the
Respondent. Also the Appellant filed annual tax returns to the Respondent for
employees who worked as itinerant workers in Delta State between 2017 to 2020.
f.
The
Respondent has erroneously and arbitrarily assessed the Appellant to additional
PAYE liabilities in the sum of ₦6,319,133,339.37 (Six Billion, Three Hundred
and Nineteen Million, One Hundred and Thirty-Three Thousand, Three Hundred and
Thirty Nine Naira, Thirty Seven Kobo) for the period 2015 – 2020.
g. The Respondent in its assessment failed
to rely on facts and the document provided to it by the Appellant. In arriving
at the erroneous assessment, the Respondent relied on ‘’undisclosed staff
income’’ for 2015 – 2016 even when the Appellant had no workers in Delta State
during those years.
h. Furthermore, the Respondent included
‘’undeclared income per invoice’’ for 2017 – 2020 without providing the basis
for the inclusion or the invoice relied upon in generating the income.
i.
The
Respondent refused to rely on the Appellant’s payroll that captured the true
position of the PAYE computed and paid for the assessment years.
j.
The
Appellant provided the relevant documents required by the Respondent but the
Respondent failed to review the documents and reconsider its position.
Ground 2
The Respondent acted in error when it arbitrarily assessed
the appellant to Withholding Tax (WHT) without providing any basis for the
assessment.
Particulars of Error
a. The Respondent assessed the Appellant to
outstanding WHT in the sum of NGN 510,000.00 (Five Hundred and Ten Thousand
Naira) on business premises from 2015 to 2020.
b. WHT is computed on passive income and
certain qualifying services received from third parties in which a taxpayer is
expected to deduct the tax from compensation paid to these third parties and
remit the same to the relevant tax authority.
c. On the other hand, business premises
levy is a levy payable to State Government for the occupation of a physical
location within the State. It is assessed at NGN5,000 per annum in Delta State
and it is not an item liable to WHT.
d. The Appellant did not have a physical
office in Delta State between 2015 – 2020 and as such neither WHT on rent
payable or business premises levy is applicable.
e. The Respondent unlawfully included this
item under the Appellant’s WHT liability in the Assessment Notice
notwithstanding the fact that the Appellant has no business premises within
Delta State.
f.
The
Appellant’s staff work from client’s project sites in Delta State. The
Appellant has informed the Respondent but the Respondent refused to consider
the Appellant’s documented objection.
Ground 3
The Respondent erred in law when in computing interests on
the Appellant’s purported tax liability, it applied 21% interest charges on the
disputed sum inclusive of the purported 10% penalty.
Particulars of Error
a. The Respondent served the Appellant an
Assessment Notice dated 14th January 2022 and Notice of Refusal to
Amend Assessment (NORA) dated 1st December 2022 with outstanding
liabilities due to the Delta State Government for 2015 to 2020 assessed at ₦8,414,479,226.20.
b. The Respondent added interest on both
the outstanding tax liability and the 10% penalty contrary to the provisions of
Section 74, 76 and 77 of the Personal Income Tax Act 2011 (as amended).
c. The purported outstanding liabilities
as contained in the Assessment Notice and NORA are yet to be final and
conclusive. Thus penalty and interest do not apply.
Ground 4
The Respondent erred when it imposed on the Appellant a
penalty for failure to file Annual Returns for 2015 to 2020 assessment years.
Particulars of Error
a. The Appellant filed its Annual Returns
for 2017 – 2020 assessment years with the Respondent with acknowledged copies
of the filed returns and evidence of PAYE remittances to the Respondent within
the prescribed time frame.
b. The Appellant did not have any staff
working in Delta State for the period 2015 – 2016, thus had no obligation to
file annual returns for the period.
c. The imposition of the penalty for
failure to file Annual Returns is arbitrary and not based on facts.
Consequently, the Appellant seek the following reliefs
from this Tribunal
(A) A DECLARATION that the provisions of the Personal
Income Tax Act 2011 (as amended) (PITA) do not empower the Respondent to demand
Personal Income Tax from Appellant’s employees whose taxes have been duly
remitted and are not resident in Delta State.
(B) A DECLARATION that the Appellant does not have an
obligation under PITA to remit withholding tax on business premises to the
Respondent between 2015 to 2020 because the Appellant did not have a physical
office in Delta State.
(C) A DECLARATION that the Appellant does not have an
obligation under PITA to file Employer’s annual returns in Delta State for 2015
– 2016 where it had no employee resident in the State.
(D) A DECLARATION that the assessment made by the
Respondent is against the provisions of the law as they are not supported with
relevant documents but are arbitrary and concocted figures sought to be foisted
on the Appellant.
(E) AN ORDER setting aside the Assessment Notice
dated 14 January 2022 and discharging the Notice of Refusal to Amend dated 1st
December 2022 issued by the Respondent.
(F) And such other Orders or further Orders
that the Honourable Tribunal may deem fit to make in the circumstances of the
case.
The Respondent on its own
part filed its Respondent’s reply to the Notice
of Appeal on the 12th April 2023 stating its intention to contest the Appeal. The grounds for contesting the Appeal are that:
a)
The
assessment Demand Notice served on the Appellant was based on information
available after a fair assessment of the company based on the industries
average after the company had refused to furnish the Respondent with the
documents needed to carry out the said assessment and was also in default.
b)
The
Respondent acted within the law when she applied the penalty for failing to
file PAYE and other assessments in the demand notice by the Appellant within
time.
TRIAL
The Appellant opened its case on 19th
day of June 2023 by calling its sole Witness (AW1) -
Olubukola Sanni , its tax Lead for Africa. In
support of its case, Appellant tendered
12 Exhibits (Exhibit
BHC 1 - Exhibit BHC 12).
Appellant gave evidence and was duly cross-examined after which the Appellant closed its
case on the 22nd
day of August, 2023. The
Respondent opened its defense on Wednesday
20th day of September, 2023 by calling its sole witness; Mr. Diekola
Oyewo (RW1) who in support of its case tendered 5 Exhibits (Exhibit DSR 1 – DSR 5) and identified Exhibit BHC2 & 5 that had been
tendered by the Appellant witness. The Respondent Witness (RW1) was then cross-examined by the Appellant's counsel, further to which, the Respondent closed its case on the
18th day of October, 2023. The
Matter was
adjourned to Monday the 11th day of December, 2023 for Adoption of
Final Written Address. Parties eventually adopted their Final Written
Addresses on12th
March 2024 and Judgment was
reserved for today the 24th
April 2024.
ISSUES FOR
DETERMINATION
In his Final Written Address, the Appellant Counsel, Emmanuel
Akpeme formulated three
(3) issues for determination as follows:
I.
Whether
from the evidence before the Honourable Tribunal, the Appellant has shown that
the additional tax assessment of NGN8,414,479,225.20 for 2015 – 2020 was
wrongful and contrary to the provision of the Personal Income Tax Act 2011 (as
amended) (‘’PITA’’)?
II.
Whether
from the evidence before this Honourable Tribunal, the Appellant is liable to
pay Business Premises levies and WHT on rent and executed contracts and supply
as assessed by the Respondent?
III.
Whether
the Respondent erred in law when it computed interests on the disputed sum
inclusive of penalty and assessed the Appellant to penalty for failure to file
annual returns for 2015-2020?
The Respondent Counsel, A. Kam ESQ, in his Final Written Address, also formulated two issues for determination which are:
(1)
Whether
the Appellant was able to prove it's case before this Tribunal.
(2)
Whether
the Appellant
carries on business within Delta State.
After listening to the
witnesses in this matter and evaluating the evidence tendered and arguments
canvassed by their Counsels, the Tribunal is of the view that only one issue calls for
determination, which is:
Whether from the evidence before the
Honourable Tribunal, the Appellant is liable to pay
the additional tax
assessment of NGN8,414,479,225.20 for 2015 – 2020 based on the provision of the Personal Income Tax
Act 2011 (as amended) (‘’PITA’’)?
DETERMINATION OF THE ISSUE
Whether from the evidence before the
Honourable Tribunal, the Appellant is liable to pay
the additional tax assessment of ₦8,414,479,225.20
for 2015 – 2020 based on the provision of the Personal Income Tax Act 2011 (as amended)
(‘’PITA’’)?
It is the
Appellant case that by an
Assessment Notice dated 14 January 2022, the Respondent assessed and demanded from the
Appellant additional tax liabilities of ₦8,414,479,225.20 (Eight Billion,
Four Hundred and Fourteen Million, Four Hundred and Seventy Nine Thousand, Two
Hundred and Twenty Five Naira, Twenty Kobo only) comprising PAYE liability, Withholding Taxes and State Development
levies for the period 2015 – 2020. Appellant argued that despite objection by the Appellant,
provision of documents to buttress its position and the subsequent
reconciliation meetings, the Respondent issued a Notice of Refusal to Amend
dated 1 December 2022 assessing the Appellant to additional tax liability. Thus Appellant maintained that the Assessment is
wrong and lacks basis under the law for several reasons:
First on the PAYE tax liability, Appellant contended that Undisclosed Staff Income was used for
the Assessment Years 2015
and 2016. They argued that this action was unlawful because Appellant did not have itinerant staff in Delta
State in 2015 and 2016 for the Escravos Gas-To-Liquid (EGTL) Project. That it commenced deploying itinerant personnel
to Delta State or the EGTL project from 2017. The Appellant in proving this fact, tendered Exhibit BHC 9 and Exhibit BHC 10. This Exhibits
clearly shows that the Respondent received the documents including the Time
Sheets of the Appellant Employees deployed to the Escravos Gas-To-Liquid (EGTL) Project in Delta
state. Exhibit BHC 9 dated 4th March 2021 and
received by the Respondent on the same day shows the
receipt of the Employee Time Sheet for the Employees specifically for the year 2015
to 2016 which is the major grouse of the PAYE liability in this matter. If
Respondent feels that these timesheets are incorrect, then at this point, in
our view, the onus of proving that those timesheets provided are invalid has
shifted from the Appellant to the Respondent to prove otherwise. For he who alleges must prove and
the onus of proof has now shifted to the Respondent. See the cases of ELEPHANT INVESTMENT LTD v. FIJABI
(2015) LPELR-24732(CA); INEME
v. INEC & ORS (2013) LPELR-21415 (CA) and AKINDOSOYE
v IKUGBAYIRE & ANOR Supra
Through the
length and breath of this matter, the Tribunal did not see where the Respondent
argued that the time sheets where not provided or that the timesheets so
provided where in correct nor provide
other evidence to contradict the Appellant claim of submission of the
timesheets by the Appellant. Thus, in view of the evidence before this
tribunal, if the Appellant did not deploy Personnel to Escravos Gas-To-Liquid (EGTL) Project, then how did
the Respondent arrive at those figures of 2015 to 2016 which is captured on the
Additional Assessment? It would seem those figures are just imaginary figures
without a basis. Consequently, the PAYE figure captured in the Notice of
Assessment cannot be valid.
The Respondent
also made heavy weather that the
Appellant did not provide requested documents. This
assertion, the Tribunal also painstakingly reviewed based on the evidence
before it. It’s on record that the Respondent notified the Appellant about a
Tax Investigation Exercise in Exhibit
DSB 1 dated 6th January 2021. The Appellant responded through Exhibit BHC 8 dated 10th
February 2021 and then via Exhibit BHC 9
dated 4th March 2021 and sent Nine (9) set of documents and another
two sets of documents through Exhibit
BHC 10 dated 22nd March 2021 which was required for the Audit to
the Respondent. Then on 15th October 2021, the Respondent sent Exhibit DSB 2 requesting for outstanding
documents from the Appellant. Ironically, most of the documents stated in that
letter have already been provided by the Appellant in previous letters vide Exhibit BHC 8 and BHC 9. Thus Appellant
in Exhibit BHC 11 dated 10th
December 2021 supplied some of the documents requested that have not been
provided with a commitment that the outstanding documents are being collated
and will be made available as soon as they are ready. Not satisfied with the
above, the Respondent served Exhibit BHC
2, an Additional Assessment
Notice dated 14 January 2022 for
additional tax liabilities of ₦8,414,479,225.20 (Eight Billion, Four Hundred
and Fourteen Million, Four Hundred and Seventy Nine Thousand, Two Hundred and
Twenty Five Naira, Twenty Kobo only) comprising PAYE liability, Withholding Taxes and State
Development levies for the period 2015 – 2020 on the
Appellant. The Appellant
on receipt of the Demand Notice, replied with Exhibit BHC 3, its objection letter dated 28th February
2022. On 18th July 2022, Respondent, through Exhibit DSB 4 invited the Appellant to a Tax Audit Reconciliation
(TARC) meeting which the Appellant obliged and the meeting was held on 1st
September 2022 as shown in Exhibit DSB 3.
After the reconciliation
meeting, the
Appellant further provided
six (6) sets of documents
requested during the Reconciliation meeting to the Respondent through emails dated
19 September 2022 and 21 September 2022 (Exhibits BHC 12a and 12b). The
documents were as follows:
I.
Monthly
Bank Statements FY 15 – 20;
II.
Delta State
Annual Returns for FY 17 – 20
III.
Audited
Financial Statement FY 15 – 20;
IV.
Staff
Cost Analysis that ties to the AFS;
V.
Contract
Documents and;
VI.
Invoices
for the relevant periods
Then on 1st December 2021, the Respondent
issued Exhibit BHC 5, which is Notice of Refusal to Amend (NORA). The specific outstanding documents
stated in the said NORA were:
I.
Audited Financial Statements (2015 – 2020)
II.
Analysis
of staff costs per state (2015 – 2020)
III.
Operational
Bank Statements
A critical
review of Exhibit BHC 12a and 12b before this Honourable Tribunal revealed that the Appellant had previously
submitted these documents to the Respondent. The Tribunal
at this point finds it very difficult to ascertain the intention of the
Respondent to demand for the same documents again and again. All the same, the
above scenario certainly revealed that Respondent allegation of Appellant not
providing documents cannot be said to be true. Infact, it is the opinion of the
Tribunal that the Appellant complied with the law by providing substantially
the documents requested by the Respondent that are required for the Audit.
On the Issue of
the Withholding Tax (WHT),
Appellant made heavy weather on the illegality of applying WHT
on rent, executed contracts and supply. However, taking
a critical view of Exhibit BHC 2
which is the Assessment Notice dated 14th January 2022, will reveal
that though WHT is captured in the Assessment, the computation is based on
Business premises levy/tax imposed by the Respondent. Respondent argued that Section 2 of the Business Premises
Edict of Delta State, 1995 defines a business premises as a premises on which
any business is carried out whether situated within or without a building or
other structure, and whether fenced or unfenced. This implies that
for a Business Premises levy/tax to be enforced there must be a premise. The Appellant
agreed and stated that the Escravos
Gas-To-Liquid (EGTL) Project commenced in 2015 but they only deployed workers to
the project in 2017. This means that there is already a project location in
2015 be it a site or camp or whatever name it is called. Thus in our opinion,
the Appellant is liable to pay the Business Premises levy and the Development
Levy with effect from 2015. During cross-examination of RW1 certain facts were
elicited as shown in the extract below:
Q:
What is the amount for Business
premises levy applicable
to Baker Hughes?
A:
₦300,000 for that period. 2015
was ₦5,000, while from 2016, it becomes ₦300,000 for Oil Servicing
Company doing Business in Delta State irrespective of any location in Delta
State.
Q: Is it Annually?
A:
Yes its annually.
Q:
So for how many years, is the Appellant
Assessed and how much?
A:
₦510,000
Q:
And that is for 5 year s
A:
Yes
From the above extract, it is
obvious that the actual Amount of Business Premises levy would have been a
total ₦1,505,000, ₦5,000 for 2015 and ₦300,000 for each of the remaining 5
years. Clearly, the Delta State Authority may have given a discount or waiver
to have captured ₦100,000.00 for year which was not made explicit during trial
as shown in the extract above or there is a mistake or over computation of the
Business premises amount in the Assessment. However, Section 59 of PITA 2011 as Amended provides mistake, error or defect in Assessment
does not invalidate that Assessment provided the Notice of Assessment is duly served on the taxable person intended to be charged
or the person in whose name the taxable person is chargeable and the notice
shall contain, in substance and effect, the particulars on which the assessment
is made. Consequently it is our view
that the Appellant is liable to pay the Business Premises Levy in the Sum of ₦510,000.00
and the Development Levy of ₦25,500 as giving rise to a total liability of ₦535,500.00
as captured in the Assessment Notice.
On the Penalty and Interest
stated in the Assessment Notice, Section 76 & 77 of the Personal Income Tax
Act, LFN 2004 (as amended) and Section 40 of the FIRS (Establishment) Act 2007
provides for a 10% penalty and Interest at the prevailing CBN re-discount rate
to be charged on tax due.
Taking into consideration
all the above issues resulting from the Assessment, it has become expedient to
revise that Assessment to arrive at a substantive decision in line with paragraph 8 of the Fifth
Schedule of the FIRS (Establishment) Act 2007 on Establishment, Jurisdiction,
Authority and Procedure of the Tax Appeal Tribunal which provides that:
“The
Tribunal may, after giving the parties an opportunity of being heard, confirm,
reduce, increase or annul the assessment or make any such order as it deems
fit.”
Conclusively, the tax due in
this matter is the Business Premises levy and the Development Levy. Therefore
applying 10% Penalty and 18.75% interest at the current CBN re-discount on the
tax liability of ₦535,500.00 (Five
Hundred and Thirty-Five Thousand, Five Hundred Naira) will give rise to a total tax liability as shown
below
Business
Premises levy N510,000.00
Development
Levy 25,500.00
Total N535,500.00
10%
Penalty N53,550.00
18.75% Interest
N100,406.25
Total
Liability
N689,456.25
Therefore, the total tax due
on Business Premise and Development Levy is ₦689,456.25 (Six Hundred and Eighty Nine Thousand, Four Hundred and Fifty-Six
Naira Twenty Five kobo only) for the period 2015 – 2020
Consequently, the
Tribunal orders as follows:
(1) The Additional Assessment Notice dated 14 January 2022 for additional tax liabilities of ₦8,414,479,225.20
(Eight Billion, Four Hundred and Fourteen Million, Four Hundred and Seventy
Nine Thousand, Two Hundred and Twenty Five Naira, Twenty Kobo only) comprising PAYE liability, Withholding Taxes and State
Development levies for the period 2015 – 2020 is hereby
dismissed
(2) The Appellant
should pay to the Respondent the sum of is ₦689,456.25 (Six Hundred and Eighty Nine Thousand,
Four Hundred and Fifty-Six Naira Twenty Five kobo only)
as additional tax liabilities for Business Premises and Development levies including Penalty and Interest for the period 2015 – 2020.
This is the unanimous
judgement of the Tribunal
Dated this __ 25th _____ day of __ April__ 2024.
Signed:
Hon. Prof. Obehi Adetokunbo
Odiase-Alegimenlen Chairman
Hon Dr. Ala-Peters David Hon. Mrs. Hilda Ofure
Ozoh
Member Member
Hon. Barr. Ajoku Vitalis Friday
Hon. Bar. Vitalis Friday Ajoku Hon. Prof. Olatunde Julius Otusanya
Member Member
Member
REPRESENTATION:
Emmanuel Akpeme and Damilola Bamisile - Appellant
P. O. Omatsone and A. Kam - Respondent